Victorian Treasury has issued 20-year bonds that pay semi-annual coupons at a rate of 2.135%. The current market rate for similar securities is 3.5%. Assume the bond has a face value of $1000.

a. What is the bond's current market value?

b. What will be the bond's price if rates in the market decrease to 1.98%.

c. Refer to your answers in part b. How do the interest rate changes affect premium bonds and discount bonds?

d. Suppose the bonds were to mature in 10 years. How do the interest rate change in part b affect the bond prices?